Shares surge as Pacifica rides the trough

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Investors have rushed back into car parts maker Pacifica Group after the company's result for the June half indicated it was coping well with the shocking downturn in its US market.

They were also attracted by a strengthening of Pacifica's 2006 profit forecast, from $30-$40 million to $35-$40 million.

The share price posted a record one-day gain of 20 per cent as buying demand pushed the price up 43¢ to $2.57 by the close.

That price represents a 93 per cent recovery since directors revealed a profit downgrade in April, pushing the price to a low of $1.33 on May 3.

While revenue was down as a result of major cutbacks by Pacifica's biggest US customer, General Motors, managing director John MacKenzie said Pacifica had still managed to achieve "healthy" earnings as a proportion of sales.

Earnings before interest, depreciation and amortisation represented 13.4 per cent of revenue, he said, in a period that was expected to be a trough in the company's earnings.

The after-tax profit was down 65 per cent to $7.26 million after deduction of $4.1 million in reorganisation expenses.

Excluding the exceptional item, Pacifica made $11.4 million from operations. Mr MacKenzie said this kept the company in line to achieve a result within the $20-$25 million indicated late in April.

The result was achieved despite the imposition of $5 million in steel surcharges by US metal suppliers. Mr MacKenzie said recent reductions in steel prices could see surcharges fall in this half-year below budgeted levels when the profit forecast was drawn up.

Volumes in the East Bentleigh plant slumped 26 per cent as Pacifica reorganised production, shifting some operations to Asia and preparing for the start of the new Camry contract later this year.

Mr MacKenzie said the first of two Chinese operations had started exporting and an adjacent iron foundry would be completed within a year.

He said Pacifica had moved from 60 per cent ownership of these businesses to 100 per cent, and they had won their first Chinese contract. This was a five-year deal to supply parts to GM at a minimum rate of $20 million a year.

The AP Italia subsidiary in Europe continued to make progress, lifting sales 24 per cent in the half and fattening margins in its expanded plant. New contracts were expected to continue the growth, Mr MacKenzie said.